The tax season is upon us, which is a time when almost everyone is preparing to file their returns. If you are a business owner who has never submitted a single tax return, you might want to know the difference between tax returns for individuals, and for businesses.
There is a huge difference between the tax that is paid by an ordinary taxpayer and the one paid by a business. If you are a business owner, your business is expected to file for tax returns. However, in some cases, you will pay self-employment tax, especially if your small business is a pass-through entity.
What is business tax?
A business tax, also known as corporation tax, is a tax imposed by the state on every business in the United States. Business tax is levied on the profits of all businesses at a rate of 21 percent. As an owner of a small business, you should expect to pay anything between 13.3 percent and 19.8 percent.
How business tax is calculated
Business tax is calculated by adding sales and other operating income then minus the cost of sales, and operating expenses.
What is tax avoidance?
Tax avoidance is a process of lowering your tax bill by structuring your transactions so that you get tax benefits. A good example of avoiding tax include, using your mortgage interest, medical expenses, and donations. Tax avoidance is totally legal but tax evasion is a crime.
When are business tax returns due?
U.S. business tax returns are normally due around the 15th of March of every year. Businesses are allowed to ask the IRS for an extension and file their returns around September. All businesses must report their taxes on Form 1120. And if your business owns more than $10 million in assets, you should file your tax returns online. Remember, it is essential that your business tax is well calculated to avoid penalties that may arise from underpaying your tax. Normally, IRS imposes an underpayment penalty when you pay less than 90% of your tax liability. So it is advisable that you pay 100% of your penalties. If after paying your tax you notice that somehow you have underpaid your tax, always make sure that you pay the balance immediately. If you still not sure how to calculate your tax, find someone who can help out. It will save you thousands of dollars.